BA operating profit halves

August 6, 2001 Posted: 1201 GMT

LONDON (CNN) -- British Airways, Europe's second-largest airline, said on Monday operating profit halved as business passengers cut back on travel.

Operating profit for the first three months of its financial year to June 30 fell to £50 million ($71.5 million) from £97 million in the year earlier period. At the bottom line, the airline swung back into the black with £26 million profit.

Analysts polled by Reuters expected an operating profit in the region of £44-£55 million. The net profit included a gain of £100 million from the sale of its low cost-airline Go.

BA, which is switching to smaller jets with fewer economy-class seats and more high-paying business travelers, blamed the fall in profit on "weak market demand as world economic growth slowed, particularly in the U.S."

In July, the company saw an 11 percent decline in premium business traffic, BA said on Friday. Sales in the three month period fell 0.6 percent to £2.3 billion.

BA said its business was further hurt by Britain's foot-and-mouth crisis that closed most of the countryside and led to the slaughter of cattle. It was also forced to cancel fights as computer problems reduced sales in March. 

The airline warned the "outlook for the rest of the year remains challenging... the busy summer season should be strong; we expect the winter months to be more difficult, depending on the economic performance of our major markets."

Passenger yields – or revenue per passenger – rose by 12.9 percent but costs rose 7.8 percent year-on-year, as fuel prices rose and wages increased, the company said.

BA Chief Executive Rod Eddington said: "The encouraging yield performance shows that our strategy is serving us well and, equally important, is helping us face the difficult market conditions."

BA and its partner in the oneworld global airline alliance American Airlines (AMR: Research, Estimates), the world's largest airline, on Friday announced they had forged a new North Atlantic alliance, which envisages profit sharing on nine transatlantic routes.

This is their second attempt to join forces across the Atlantic since the first was effectively blocked three years ago. BA was unwilling to hand over lucrative takeoff and landings slots at Heathrow Airport, Europe's busiest airport and a key hub for flights between Europe and North America.

Eddington and his counterpart at American Don Carty said they would seek antitrust immunity from regulators on both sides of the Atlantic and Brussels for their new North Atlantic venture.

They believe the industry landscape has now changed since they first floated plans to combine their Atlantic routes. The Star Alliance, led by Deutsche Lufthansa and UAL Corp's United Airlines, now control about 27 percent of slots at Heathrow.

"The traffic data that came out on Friday pointed to a decline in premium cabin services versus economy," Amanda Forsyth, a fund manager at Scottish Life Investments, which holds 3 percent of BA's stock, told Reuters.

 "A great deal is hinging now on the alliance with American Airlines because that's really the key to enable them to get their service levels and cost base right," she said.

Shares in BA rose 1.1 percent to 342.35 pence in midday trade on Monday. The stock has fallen more than 26 percent from a peak of 463 pence on January 31.

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